Taxing Times – November 2016

We are now racing through the final months to Christmas.  But we all know that is no excuse to relax when it comes to our businesses, our finances and our tax returns! So keep up the focus and the energy and hopefully there will be something to inspire you/interest you/make you think (or all three!) in this month’s Taxing Times.

In this edition read about:Tax Opps

  • A tax warning on charitable donations
  • It’s a MAD world! The new era of making tax digital
  • What do HMRC know about YOU?
  • Payroll Update
  • Tax News

Before we leave you to read on, we’d also like to introduce you to Phil, the newest addition to our in house IFA team.

phil-jackson-2990After only 12 months of opening its doors, our financial services firm, Dodd Wealthcare, announces the appointment of its second financial adviser to the team. Phil Jackson will head up the Penrith office’s operations with effect from the end of October.

Phil Jackson, who has worked as an adviser in the financial service sector for almost 16 years is delighted to be joining the team and comments “It is becoming increasingly difficult for clients in business to separate their personal and business finances. This means that, in a firm like Dodds, we can offer one holistic solution under one roof. I am hugely excited to be given the opportunity to develop clients’ services in our Penrith office”. To read more about Phil and the Dodd Wealthcare team please click here.

This is the last Taxing Times for 2016 so, to all our readers, have a good Christmas and New Year and we hope you come back rested and rejuvenated in January! HOWEVER look out for our Autumn Statement coverage following all the announcements, due on Wednesday 23 November, where we will explain all the changes and what they will mean for you! 

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Making donations? Take care over gift aid

23988357_sComing up to Christmas is often a time when many of us make charitable donations.  But here is a word of warning about gift aid.

Whilst donating to charity gives us a warm glow inside, it’s worth taking a second to fully appreciate what ticking the gift aid box means.  Most people understand that ticking the box allows the charity to reclaim tax from the government, thereby getting extra money as a result of your donation.  Where you are a taxpayer, the charity can reclaim the basic rate tax on your donation, so for every £100 donated, the charity gets an additional £25 from HMRC.

If you pay higher rates of income tax, you also benefit because you can claim higher rate tax relief, so as a 40% tax taxpayer, the £100 donated actually only costs you £75.

However, if you are a non-taxpayer or have not paid enough tax to cover the amount which will be reclaimed by the charity and you tick the gift aid box, the charity will claim the tax, but the Government will not have had an amount of tax from you to cover it ….so YOU will be required to pay over the difference to HMRC.  That is NOT what many people expect when they make a donation to charity!

stickman-ticklist-18456177_sThis is more likely to be an issue from 6 April 2016 because of new dividend and interest tax rules.  The new rules are that the first £5,000 of dividends are exempt from tax and up to £1,000 of savings income is exempt. Dividends no longer carry a “tax credit”.   So, in the past, someone who was in receipt of mainly dividends and who made Gift Aid donations would have been “deemed” to be paying basic rate tax (because of the dividend tax credit) so HMRC accepted that the tax related to the charitable donation was covered.  This is no longer the case.  And the interest rules just complicate things further.  It is therefore worth reviewing your position for 2016/17 and notifying the charities if the gift aid box is no longer appropriate (i.e. you aren’t paying enough tax to HMRC to cover the tax reclaimed by the charity), otherwise you could find yourself landed with an unexpected tax bill!

If you are going overseas and will be non-resident for tax purposes, it is also worth reviewing any donations as Gift Aid means that the tax return must be submitted by paper, resulting in a filing deadline of 31 October, so you could find yourself being charged with a late filing penalty as well as a  tax bill to cover the tax reclaimed by the charity.   Not a happy scenario when you are trying to do some good!

The other change worth noting is donations made by partnerships.  Each and every individual partner will need to make their own Gift Aid declaration for all donations. It is no longer possible for the partnership, or one partner on behalf of the others, to make a single donation against which each partner then claims relief for their share of the donation on their personal tax return. The Gift Aid declarations must now be made by each individual partner.

What a complexity!  If you need assistance in reviewing your Gift Aid position please ask your usual Dodd & Co contact.

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It’s a MAD world! Making Tax Accounts Digital

As Tears for Fears sang in the 80’s….Its a mad world! And I find it kind of funny and I find it kind of sad…it’s a very very mad world

We thought that was a very catchy strapline for this article because – as you find out if you listen in detail to the (limited) information coming from HMRC as yet – although their new digital information campaign is branded “making Tax digital for businesses”, it is really all about making accounts and record keeping digital in near real time. Hence MAD (Making ACCOUNTS Digital) – it is appropriate on so many levels!  The tax then just follows (usually at the end as it does now).  So we thought we would highlight some of the information coming from HMRC to try and demystify what on earth is going to happen.

The campaign (which I will continue to refer by the acronym MAD!) is in consultation stage only at the minute.  The consultation has finished and HMRC are going through the responses to try and make some decisions on what the new requirements will look like;

It will apply first of all to unincorporated business and landlords (although there are some proposed exemptions from MAD for very small business).  It will not apply to companies yet (although HMRC expect MAD for companies to happen in due course).  It is due to come in from April 2018 and noises from HMRC and the Government are that they are VERY committed to the change so it looks set to go ahead despite big reservations from taxpayers and the professions.

Despite the official name “making tax digital for businesses”, HMRC’s focus is on updating records digitally and collecting information as close to real time as possible (a bit like Real Time Information for PAYE, if that analogy helps).   HMRC say that the reason for the change to digital record keeping is that there is a significant tax gap (the difference between tax actually paid and what should have been paid) which is down to basic errors and failure to take reasonable care in recordkeeping.  Examples given were columns of expenditure not adding up, and transactions being missed.  MAD is therefore about reducing the number of errors by making it mandatory for businesses to record transactions more regularly and digitally, rather than relying on a pile of manual records often not collated until after the year end when some have been lost.

HMRC estimate that £600 million more tax per annum will be collected under MAD simply because the record keeping will be better and errors will be fewer!  So of course the new digital campaign is all about tax – after all, most things boil down to cold hard cash in the end!  But tax is the endgame and recordkeeping is what underpins it and is fundamental to this brave new world.

In a Q&A session HMRC said that tax adjustments (such as capital allowances) could be made as the customer (you!) goes along updating their records but equally it could be done at the end, as happens now when a tax computation is prepared from accounts.  Similarly they said that accounting standards adjustments such as accruals, prepayments and stock value adjustments could be made on an on-going basis but could be done at the end if that was easier – customer’s choice (phew)! What came across in this particular Q&A session is that HMRC were really interested in having the records of transactions updated in digital format as close to real time as possible, before information gets lost/missed.  So perhaps it would be better to brand this campaign as “real time income and expenditure statements”?

Money bags 2Quarterly updates to HMRC will be needed (or penalties for failure to submit will occur – much like PAYE for employers).  But apparently those updates will not be a new or separate return to complete.  The intention is that the statements will be able to be generated from the digital software system you have chosen and it will simply capture the info HMRC want and sent it to them in the required format.   That is the hope and that is what HMRC are talking to software providers about.

HMRC say that the government will make help and support available to make the change to digital.  They don’t know what that support will look like yet (part of the consultation process).  They are looking at why people might find it difficult to switch to digital record keeping to try and tailor the kind of support they offer.  There will also be an exemption for certain people who cannot go digital (definition still being consulted on) though “cannot” is different to “don’t want to/find it hard”. We are also told that they have promised free software will be available to those with the simplest business affairs (though provided by software providers rather than HMRC).

As we said in October’s Taxing Times, we don’t want clients to face this new digital world alone.  So we have put together a CAT team, that is our “cloud accounting” team who can help with all digital accounting matters, provide advice on software packages and help hold your hand as much or as little as you want while navigating the new accounts/tax digital age! We won’t push you to any one particular cloud package, we will look at a whole range of what’s out there and advise you on what’s best for you and your business.  Contact Kristina Gash on 01228 530913 or email kristina.gash@doddaccountants.co.uk

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Big brother is watching…more digital angst!

What does the taxman know about you, your finances and your lifestyle?

HMRC’s has an impressive and very efficient new software called “Connect”.  Connect is used to scour  vast databanks of personal and commercial information, seeking to unearth links between individual taxpayers and businesses, income, assets and transactions in a hunt for underpaid tax.   It then matches its findings against the information the taxpayer has provided through their return. Discrepancies are flagged and could prompt a tax investigation.  The searches take just seconds and are undertaken repeatedly to capture new information.

More than a billion items of data from 30 sources can currently be accessed by Connect, such as the Land Registry or DVLA, bank information, pension information, credit card transactions, as well as a growing number of private businesses or trade associations, and even patrolling eBay activity to catch traders rather than hobbyists and Facebook to catch careless talk for evidence of spending, travel, or ownership of property and other assets.

From next year Connect’s powers will extend further still as it goes global with access to data in a further 60 countries (as well as British overseas territories such as the Channel Islands).

(Is anyone else thinking of Skynet from the Terminator series? We all know what went wrong there!)

There are some reservations about the program.  There is (as always with data) a possibility that some of the data could be erroneous or incomplete, as well as the slight unease many people have about so much personal information being available to Government officials  (who isn’t just a little bit wary about Big Brother?)  But it has been an extremely successful tool so far, identifying more than £3 billion in undeclared tax, and with so much money invested in its development, you can be sure if it here to stay.

How times have changed from the old pre- Self Assessment system when HMRC would  tell you what you owe. These days it is up to the taxpayer to declare what s/he should be paying.

As HMRC now has the means to check that what you’re saying is complete and correct, do be sure it is accurate…

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Payroll Update

Automatic Enrolment – Don’t leave it too late!

If you have received a letter from The Pension Regulator telling you to “ACT NOW: you have new legal duties” then don’t just ignore their warning.

22387798_mlThe notification will advise you of your staging date and this is the date when you must have all your plans and your qualifying pension scheme in place.  So if you have a staging date in 2017 then you must start planning now.

Workplace pensions and automatic enrolment are duties that cannot be ignored.  One way or another it will affect your business.  The Pension Regulator has been issuing more £400 fixed penalty notices when an employer has not complied with their duties with escalating penalty notices following, which can amount to significant fines depending on the number of employees you have.

In order that you plan ahead you must:

  • Set up a pension scheme that is suitable for automatic enrolment purposes
  • Make sure the payroll software you use is going to be able to deal with the assessment you need to complete every  time you run your payroll or ensure the people who process your payroll for you are ready to complete the pension assessment on your behalf
  • Make sure you communicate the changes that are happening to your employees within the deadlines set out by The Pension Regulator
  • Enrol any workers who meet the qualifying criteria into your pension scheme within the set timescales
  • Monitor any changes as you run your payroll
  • Complete a Declaration of Compliance with The Pension Regulator within a set timescale.

Payroll Web ImageAs smaller companies now have to meet their duties, there are many who have missed their deadline and are now starting to panic.  However, as more and more businesses need support to help them comply with their duties then the capacity for automatic enrolment experts being available to assist, may diminish.  Advisers such as ourselves are being urged to expect an avalanche of requests from clients who have imminent automatic enrolment dates coming up.

So if you need our help, please get in touch immediately so we can help you plan ahead and ensure you meet your duties in 2017.

HMRC to crackdown on use of fake freelancers

HMRC is creating a specialist team to clamp down on businesses using allegedly freelance workers who are effectively in full-time roles. The move comes after the Government raised concerns that up to 500,000 workers could be wrongly classed as self-employed, denying them protections such as maternity leave, sick pay and pensions, and costing the Treasury more than £300m in lost national insurance. Courier Hermes has been in the firing line after more than 100 complaints from workers that they are paid less than the living wage, which has initiated an enquiry into self-employment practices at the firm.

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What’s new in the world of tax?

The Accountant tops US box office 18.10.16

Ben Affleck’s latest film, The Accountant, topped the US box office on its opening weekend. The crime drama took $24.7m (£20.3m).

See, we told you we were exciting!

Bye bye baby? Chancellor considers dropping Autumn Statement

Philip Hammond is considering returning the Autumn Statement to its original function of fiscal forecasting, reining back the Treasury to focus it on tax and spending decisions in the spring Budget.

A plaintive cry is heard from tax advisers who have had to assimilate every single tax change made at the Autumn statement for the last few years: “yes please, that would be nice!”

Paying tax and NIC is not enough to avoid jail: accountant gets jail sentence for beauty parlour exploits

An accountant from Stockport has been given a six month suspended jail sentence after admitting running a brothel used for prostitution, although the court was told the business from which it operated paid all income tax and National Insurance contributions due (paying your taxes is not a mitigating circumstance for illegal activity then!)

The accountant appeared before Stockport magistrates court after his business had been raided following a tip off to police by his wife. While it operated as a legitimate beauty salon offering a range of therapies, the court was told the accountant also managed a number of women from the premises who provided sexual services.  The court heard that the accountant took a cut of 30% to 50% from the women, and was also said to provide advice to those who wished to set up their own business.

We all like to go the extra mile for our clients, but this is not what we mean!

You just keep me hanging on!

angry-office-worker-509970_lYes we have used this heading before in Taxing Times but it is just so relevant…this time the First Tier Tribunal has found that a taxpayer had a reasonable excuse for late payment of VAT when his agent made numerous attempts to call HMRC before the deadline to request time to pay but was unable to get through because the lines were permanently engaged.  The tribunal rejected HMRC’s argument that the taxpayer should have expected the lines to be busy around the quarterly payment and submission date.  The Tribunal considered that it was HMRC not the taxpayer who should be expected to know which periods were particularly bust and make arrangements to deal with increased demand at peak times.  As if…!

A small victory but we will take what we can.

Knock knock! – Taxman increases property raids  26.9.16

HMRC has increased the number of property raids they carry out as part of criminal investigations into tax evasion by 28% in the last year. A total of 761 premises were raided, up 53% on five years ago. Paul Noble, tax director at Pinsent Masons, which collated the figures, said: “Criminal prosecutions for tax evasion can be notoriously difficult to bring to court, so raiding property is a vital way for HMRC to get hold of the crucial evidence it needs.”

Rooney and Southgate face tax avoidance bills

David Sanko-2Wayne Rooney is facing a £3.5m tax bill after HMRC challenged investments he had made in a film investment partnership. The footballer used Invicta 43 to shelter £12.5m, which he borrowed, to avoid tax legally on his then £4m annual salary at Manchester United for three years. Separately, Gareth Southgate has also been hit by a tax demand after investing in partnerships set up by investment firm Ingenious, which is considering whether to contest a recent tribunal decision and the resulting £620m tax bill. The final decision on what tax might ultimately be payable could be years away as both HMRC and the scheme providers are likely to consider onward court appeals.

Have I got news for you….BBC stars face tax probes!

HMRC has revealed that over 100 BBC stars are being investigated for alleged tax avoidance having used personal service companies to minimise their tax bills. BBC newsreaders Tim Willcox and Joanna Gosling are two such stars. The pair are appealing against a ruling by HMRC that they failed to pay enough tax during years in which they claimed they were not employed by the corporation, and were instead paid via their personal service companies. Jennifer Henderson, the BBC’s head of global mobility and employment tax says the “appeals are likely to be the first cases to test the freelance model in the broadcasting industry against the IR35 legislation.”

This may be an interesting case on the “disguised employment” and “fake freelancers” that HMRC are so keen to crack down on.  Watch this space…….

Cherie Blair’s challenge to buy-to-let tax judicial review fails

3898651_xxlCampaigners, led by Cherie Booth QC, say they will continue to fight against changes to taxation of buy-to-let income after their application to launch a judicial review of the new law was refused. Cherie said: “The Government does not have the right to deprive British citizens of their hard-won property rights in a discriminatory way.”  On the other hand, Timothy Brennan QC, representing the Government, said that Parliament had the right to change tax law how it wished, and that it was normal for individuals and companies to be taxed differently. Residential Landlords’ Association policy director David Smith said: “By implementing a policy that will increase rents and choke off the supply of homes to rent, the Government is making it more difficult for tenants to save for a home of their own”. But Betsy Dillner, director of renters’ rights group Generation Rent, said the group was in favour of the changes: “For too long the tax system favoured people who bought homes to make a profit over people who just wanted somewhere to live”.

This is a change which affects a reasonably small number of taxpayers, is unlikely to be changed but is definitely contentious and polarises opinion. 

And finally…..French taxman’s grave mistake

A demand for property tax has been sent to the grave of a deceased woman in the Brittany town of Sarzeau.  The local mayor said he was “dumbfounded” by the demand from the regional tax office, which was addressed to “Grave 24, Row E, Cemetery Road”!!

 

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